Struggling Slovenia set to get new PM to rescue economy

LJUBLJANA (Reuters) - Financial expert Alenka Bratusek is expected to get a one-year mandate to pull struggling euro zone member Slovenia back from the brink of a financial bailout when parliament votes on Wednesday to oust conservative Prime Minister Janez Jansa.

Parliament's scheduled "constructive no-confidence vote" takes place at the height of a financial crisis in the tiny Alpine ex-Yugoslav republic, which is wrestling with recession and a huge amount of bad loans strangling its banks.

Center-left Positive Slovenia, led by Bratusek, struck a deal last week with the Social Democrats and two of Jansa's former allies to give her the reins for a year, with an option to keep her at the helm until an election due in 2015.

If confirmed, Bratusek, who turns 43 in March, will become Slovenia's first female prime minister. She oversaw the state budget at the Finance Ministry for six years before entering parliament in December 2011.

Slovenia, a former star of post-communist transition, has been gripped by street protests against austerity and corruption since November, as unemployment hit a 14-year high and living standards plunged in the wake of the government's spending cuts.

Jansa was effectively felled when a third member of his ruling bloc walked out over a property scandal exposed by a state anti-graft commission in January, leaving him with just 30 out of 90 seats. He has denied any wrongdoing.

The new government will have to reform the banking system, which is nursing 7 billion euros ($9 billion) of bad loans, increase labor flexibility, sell some state firms and possibly raise the value added tax to reduce the budget gap.

"If they bite the bullet and work hard, they might just succeed," said pensioner Drago Ikic in the capital, Ljubljana. "But if they fail, then really all the politicians should just leave and call an early election."

BAD BANK

Bratusek has so far given away few clues about her cabinet make-up or plans to deal with the most serious crisis to hit Slovenia since it declared independence from Yugoslavia in 1991.

However, given the differences between the new coalition - which would group the center-right Civic List and pensioners' party Desus from the previous government with the two center-left opposition parties - it is not likely to be plain sailing.

Jansa's cabinet had planned to set up a "bad bank", where it would park all the bad loans before recapitalizing and selling the local lenders. Bratusek's PS and the Social Democrats had opposed the plan in parliament, but it was eventually approved.

European Central Bank board member Joerg Asmussen said on Monday the bad bank was a priority if Slovenia wanted to overhaul its economy and retain access to foreign financing. It needs to repay 2 billion euros of maturing debt in mid-2013.

"It looks like the bad bank plan may not fly but they can probably find a different way, there are several variants," said Borut Hocevar, a political analyst at the Finance newspaper.

Export-oriented Slovenia was badly hit by the global crisis and fell into a new recession last year. The government crisis slowed badly needed reforms and revived speculation it might become a sixth euro zone member in need of a bailout.

Guy Verhofstadt, a former Belgian prime minister and leader of the Liberals in the European parliament, said Slovenia's plight was a telling tale for the euro zone.

Its overall debt pile and budget deficit meet EU limits, he told a Reuters Summit, yet its borrowing costs are high because it is "a small country with no liquidity".

Estimates suggest Slovenia could need up to 5 billion euros, mostly for shoring up its banks. Although small, a bailout would be politically awkward when the currency bloc is wrestling with financial woes in Greece, Spain, Italy, Portugal and Cyprus.

It would be much tougher on Slovenia itself, forcing the government to make more spending and job cuts, under international supervision.

For some Slovenes, who have taken to the streets in their thousands to rally against corruption and the political elite since November, a change of prime minister was only a fig leaf.

"Nothing will improve until all the politicians are changed," said graphic designer Miha Skalar. "They all think the same way."